The model
The dynamic-systemic strategic approach has one of its foundations in the strategic vision of the company based on the resources and capabilities it possesses or can and must develop or acquire in order to successfully design and develop its competitive strategy (The Resource Based View of the Firm). This model affects more than others on the internal aspects and on the potential of companies as competitive factors (Morecroft, Warren, Hamel and Prahalad, Grant, Goshal, Stopford, etc). But resources and capabilities can grow and shrink, be more or less valuable in changing competitive environments, deteriorate or revalue. And all this over time. Hence the use of the adjective "dynamics". On the other hand, no one doubts that the company like any other organization,how ecosystems and how the universe as a whole are systems.
We are convinced that the conjunction and apprehension of the two terms, "dynamics" and "systems" decisively contribute to improving and updating learning and therefore the human capital of organizations in general and of companies in particular.
Dynamic of systems
Although systems dynamics was founded more than thirty years ago by Jay Forrester, among others, it is in the last 8 or 10 years that it has been applied with greater rigor and frequency to problems of business strategy and policy. This approach provides a set of strong and valid frameworks for developing and maintaining competitive advantages today and in the future. This new paradigm is being developed in the “London Business School” of which I have been a student and with whose department of “Systems Dynamics” (Morecoroft, Warren, Larsen, Van Ackere, et.al.) I continue to collaborate. Although it develops on well-known and accepted strategic concepts, it goes beyond and distances itself from them when it tries to provide the managers responsible for strategic design with answers to the following three questions:
- Why is performance following the current path or path? Where do we go if we continue along the same lines? How can we design a strong and consistent strategy that improves current performance in the future?
This approach begins by determining the time frame that the management team is interested in, including a clear focus on the scale (days, months, years, etc.) and on the rate or rate of change. In our opinion, this vision of strategic performance is so essential, critical, in any sector, industry or activity that it would be reasonable to suppose that it should be applied in any type of competitive analysis. And yet this does not seem to be happening.
With the leadership, drive and support of its President, at Euroforum we are going to develop this line of work that we believe represents “the state of the art” not only in Spain.
The process
To understand this time frame and apply it to any company, we began to analyze and apprehend the full range of the firm's resources and capabilities; for example, customers, staff, technology, reputation, etc.
Since at Euroforum we frame this project within which it constitutes an intellect that will soon be joined by SOL ESPAÑA (member of the International Society for Organizational Learning chaired by Professor and “guru” Peter Senge), we believe it necessary to emphasize that the Dynamics of Systems doesn't just include tangible resources and capabilities. It has the ability to incorporate "soft" variables, such as intangibles related to learning, human capital, and even factors that promote or hinder it (quality of service, staff morale, ability to learn, including aspects such as anxiety, resentment or insecurity).
Once the tangible and intangible resources and capacities have been identified, we work on what we consider critical to design a solid and consistent strategy:
- What forces influence the creation and development or the loss and deterioration of each of the fundamental or critical resources? Rates or rates of change are the essential factors for the growth or disappearance of competitive advantages. And yet conventional strategic analyzes do not take them into account. For example, the hiring and attrition or dismissal of personnel; win or lose customers; increases or decreases in morale; and obtain or lose the support of investors or funders. How is the interdependence between strategic resources? How are they interrelated? Companies can only develop their resources and capabilities based on what they have (even entrepreneurs have to have some to start their activity).Our approach provides a rigorous method to represent and analyze this interdependence and, most importantly, to design new and better mechanisms to increase the growth of the company or to stop its deterioration. For example, we can only win customers if the performance of the product or service is excellent and if the sales staff is sufficient in number and quality. At the same time, the morale of the sales team will depend on the success of the company in winning and retaining its customers. What feedback mechanisms operate in this structure? Once we have identified and interrelated the most important resources and capacities and they work in harmony, the mutual reinforcement between all of them can produce exceptional growth rates. However, unless they are balanced,the feedback effect can lead to stagnation and even quickly trigger collapse. The method shows how to identify and design these feedback systems to facilitate growth and defend against failure.
Starting from these central frameworks, it is possible to extend them widely. In fact, it is almost always essential to include in the model and value intangible aspects, such as staff morale, the fame or reputation of the company, the ability to develop new products, etc. In addition we will be able to capture in detail the dynamics of our competitors either in the race to develop new markets or in the battle to retain the customer base or other scarce resources. Finally, this approach offers a set of perspectives on the sectoral evolution processes, either because of the interactions between the variety of companies that operate in a sector; or by the appearance of differences between the relative development of related sectors (substitutes and entrants).
